If you are a vat registered trader that has to pay vat as soon as you issue a vat invoice then you can go for vat cash accounting scheme to delay your vat payments. Under this scheme you will need to pay vat only after your customers have paid against your vat invoice.
Under regular vat accounting, you will have to pay vat in the next vat return irrespective of whether your client has cleared payment of the vat invoice www.vatvalidation.com. This is especially true in case your business compels you to issue credit invoices more often than not. When this occurs you would end up paying the vat amounts even in case your client does not make any payment at all. Thus, you’d end up paying vat even on the bad debts.
If you’re a trader in Britain then you could easily shift over to the cash accounting scheme in vat that’s made available from HM Revenue and Customs department or hmrc vat department. You will however qualify for this scheme only if your estimated taxable sales within the next year are not greater than ?1.35 million recommended site. You will also have to exit the scheme as soon as your taxable sales touch ?1.6 million. You could also have the ability to make use of the cash accounting scheme along with other vat schemes like the annual accounting scheme.
You can shift over to this scheme even without informing the hmrc vat department provided you are doing so at the start of any vat accounting period. You will however need to separate these invoices from the earlier vat invoices that you’d have issued under the standard vat accounting scheme. There are many benefits and drawbacks while choosing the cash accounting scheme. The pros are that if your clients pay out only after a couple of days, weeks or months then you need to cover vat only after receiving payments from those clients. You can also remain safe in case any client fails to make payments.
The cons to this scheme are that you will need to maintain specific payment records of all of your customers including providing additional evidence in the form of bank statements whenever required by hmrc. Additionally, you will be able to reclaim vat on any purchases only after you have paid your supplier. In case you opt to shift to standard vat accounting then you’ll also have to take into account all pending vat amounts including any money owed. Additionally, you will be barred from using vat cash accounting scheme by hmrc if you happen to end up making mistakes in vat calculations, get convicted in a vat offence or get penalized for vat evasion. When you do leave the scheme you will have to take into account all pending vat within the next Six months.
If you are a vat registered trader that sells services or goods mainly on credit but buys them against cash bills then this cash accounting scheme might be suitable for you. You could possibly not pay vat on debt and might only have to pay vat whenever your clients pay you. However, you should seek advice from your vat agent and understand all advantages and disadvantages regarding the vat cash accounting scheme before you go for this type of scheme.